Colombian paper models non-linearity in sovereign risk
Global volatility affects importance of sovereign risk, authors find
Global volatility can create non-linearities in the impact of sovereign risk on the real exchange rate, according to a paper published on November 17 by the Central Bank of Colombia.
Sovereign risk and the real exchange rate: a non-linear approach, by Jair N Ojeda-Joya and Gloria Sarmiento, captures the non-linearity of sovereign risk using a smooth-transition cointegrated regression. As the volatility measure increases, the impact of sovereign risk lessens – implying sovereign risk matters more
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